[Federal Register Volume 68, Number 242 (Wednesday, December 17, 2003)]
[Rules and Regulations]
[Pages 70122-70131]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-31093]



[[Page 70122]]

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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Parts 3, 5, 6, 7, 9, 28, and 34

[Docket No. 03-24]
RIN 1557-AB97


Rules, Policies, and Procedures for Corporate Activities; Bank 
Activities and Operations; Real Estate Lending and Appraisals

AGENCY: Office of the Comptroller of the Currency, Treasury.

ACTION: Final rule.

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SUMMARY: The Office of the Comptroller of the Currency (OCC) is 
publishing a final rule implementing authority provided to national 
banks by sections 1204, 1205, and 1206 of the American Homeownership 
and Economic Opportunity Act of 2000 (AHEOA). Section 1204 permits 
national banks to reorganize directly to be controlled by a holding 
company. Section 1205 increases the maximum term of service for 
national bank directors, permits the OCC to adopt regulations allowing 
for staggered terms for directors, and permits national banks to apply 
for permission to have more than 25 directors. Section 1206 permits 
national banks to merge with one or more of their nonbank affiliates, 
subject to OCC approval. In addition, the rule amends parts 5, 7, 9, 
and 34, for other purposes and makes several technical corrections.

EFFECTIVE DATE: January 16, 2004.

FOR FURTHER INFORMATION CONTACT: For questions concerning 12 CFR 5.20, 
contact Richard Cleva, Senior Counsel, Bank Activities and Structure 
Division, (202) 874-5300; or Andra Shuster, Counsel, Legislative and 
Regulatory Activities Division, (202) 874-5090. For questions 
concerning 12 CFR 5.32, contact Mark Ginsberg, Senior Licensing 
Analyst, Licensing Policy and Systems Division, (202) 874-5060; or 
Andra Shuster, Counsel, Legislative and Regulatory Activities Division, 
(202) 874-5090. For questions concerning 12 CFR 5.33, contact Crystal 
Maddox, Senior Licensing Analyst, Licensing Policy and Systems 
Division, (202) 874-5060; Richard Cleva, Senior Counsel, Bank 
Activities and Structure Division, (202) 874-5300; or Andra Shuster, 
Counsel, Legislative and Regulatory Activities Division, (202) 874-
5090. For questions concerning 12 CFR 7.2024, contact Andra Shuster, 
Counsel, Legislative and Regulatory Activities Division, (202) 874-
5090. For questions concerning 12 CFR 34.3, contact Mark Tenhundfeld, 
Assistant Director, or Andra Shuster, Counsel, Legislative and 
Regulatory Activities Division, (202) 874-5090. For questions 
concerning 12 CFR 9.18, contact Beth Kirby, Special Counsel, Securities 
and Corporate Practices Division, (202) 874-5210.

SUPPLEMENTARY INFORMATION: On February 7, 2003, the OCC published a 
notice of proposed rulemaking in the Federal Register (68 FR 6363) to 
implement the AHEOA and clarify our visitorial powers regulations 
(NPRM). In addition, we proposed to amend (1) 12 CFR part 5 concerning 
limited-purpose banks, factors to be considered in business 
combinations, and operating subsidiary activities eligible for after-
the-fact notice requirements; (2) 12 CFR part 7 concerning national 
banks' ability to provide tax advice; (3) 12 CFR part 9 concerning the 
valuation of collective investment funds; and (4) 12 CFR part 34 to 
update regulatory text to conform to a statutory change. Various 
technical changes to correct citations or footnote numbering were also 
part of the NPRM.
    The OCC received a total of 55 comments on the NPRM. Of this 
number, 34 addressed the parts of the proposal that implemented the 
AHEOA provisions and amended 12 CFR parts 5, 7, 9, and 34. These 
comments included two from bank holding companies, four from banking 
trade associations, one from a community trade association, one from a 
non-profit consumer group, one from a bank supervisors' trade 
association, and 25 from state bank supervisors' offices. While many of 
the commenters supported the proposed changes, many offered suggestions 
for changes. For the reasons discussed below, we have adopted the 
provisions of the NPRM with a number of changes in response to the 
comments received to clarify certain provisions.
    Many of the comments we received on the proposal also addressed the 
revision to our visitorial powers regulation. A number of these 
comments contained thoughtful and detailed arguments that we will 
address in a rulemaking to be published separately in the Federal 
Register.

I. Amendments Implementing the AHEOA

A. Background

    The National Bank Consolidation and Merger Act (12 U.S.C. 215 et 
seq.) (Merger Act) permits consolidations and mergers involving 
national banks. Pursuant to 12 U.S.C. 215 and 215a, national banks or 
state banks \1\ may, with OCC approval, merge or consolidate with a 
national bank located in the same state, resulting in a national bank. 
National banks also may merge or consolidate with Federal thrifts under 
12 U.S.C. 215c, resulting in either a national bank or Federal thrift. 
Pursuant to 12 U.S.C. 215a-1, an insured national bank may merge or 
consolidate with an insured bank located in a different state.
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    \1\ The term ``state bank'' is defined by the statute to include 
state-chartered banks, banking associations, trust companies, 
savings banks (other than mutual savings banks), and other banking 
institutions engaged in the business of receiving deposits. 12 
U.S.C. 215b. This section also contains other definitions.
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    Prior to the enactment of the AHEOA on December 27, 2000,\2\ the 
Merger Act did not address mergers or consolidations involving a 
national bank and its nonbank affiliates. However, section 1206\3\ of 
the AHEOA amended the Merger Act to permit national banks to merge with 
one or more of their nonbank affiliates with the approval of the OCC 
(Section 1206 Merger).
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    \2\ Pub. L. 106-569, 114 Stat. 2944.
    \3\ Pub. L. 106-569, sec. 1206, 114 Stat. 2944, 3034 (codified 
at 12 U.S.C. 215a-3).
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    Other provisions of the AHEOA liberalize statutory reorganization 
and corporate governance requirements for national banks. Section 
1204\4\ amends the Merger Act to expedite the procedures that a 
national bank may use when it reorganizes to become a subsidiary of a 
holding company. Section 1205\5\ of the AHEOA liberalizes the 
requirements governing the number and length of service of national 
bank directors.
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    \4\ Pub. L. 106-569, sec. 1204, 114 Stat. 2944, 3033 (codified 
at 12 U.S.C. 215a-2).
    \5\ Pub. L. 106-569, sec 1205, 114 Stat. 2944, 3033-3034 
(amending 12 U.S.C. 71 and 71a).
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    This final rule contains amendments to 12 CFR parts 5 and 7 to 
implement these changes made by the AHEOA.

B. Description of the Proposal, Comments Received, and Final Rule

1. Reorganization into a Holding Company Subsidiary--New Sec.  5.32
    Pursuant to section 1204 of the AHEOA, a national bank, with the 
OCC's approval and the affirmative vote of shareholders holding at 
least two-thirds of the bank's outstanding capital stock, may 
reorganize to become a subsidiary of a bank holding company or a 
company that will become a bank holding company through the 
reorganization.
    Proposed new Sec.  5.32 implemented this provision. Paragraph (a) 
stated the authority for engaging in section 1204 transactions. 
Paragraph (b) repeated the scope of the statute and provided that Sec.  
5.32 applies to a reorganization of a

[[Page 70123]]

national bank into a subsidiary of a bank holding company or of a 
company that will become a bank holding company through the 
reorganization. In order to clarify the types of entities that would be 
covered under this section, we have added a sentence at the end of 
paragraph (b) that states that, for purposes of Sec.  5.32, ``bank 
holding company'' means any company that owns or controls a national 
bank, or will own or control one as a result of the reorganization. 
Thus, the term ``bank holding company'' is not limited to companies 
that would be bank holding companies under the definition of the term 
in the Bank Holding Company Act of 1956 (BHCA).
    Pursuant to proposed Sec.  5.32(c), a national bank must submit an 
application to, and obtain approval from, the OCC prior to 
participating in a section 1204 reorganization. Paragraph (d) described 
the procedural requirements for this type of transaction. In accordance 
with proposed Sec.  5.32(d)(1), the application is deemed approved by 
the OCC as of the 30th day after the OCC receives it, unless the OCC 
otherwise notifies the applicant national bank. Approval of 
applications under Sec.  5.32 is subject to the condition that the bank 
give the OCC 60 days' prior notice of any material change in its 
business plan or any material change from the proposed changes 
described in the bank's plan of reorganization. A few commenters 
recommended that the OCC give national banks notice that an application 
has been received and is complete to verify that the application is in 
process and to ensure that all parties know when the 30-day time period 
starts to run. We have not revised the proposal in response to this 
suggestion, however, because our standard application procedure 
includes sending out an acknowledgment letter that will provide the 
information the commenters requested.
    These same commenters also suggested that the OCC provide banks 
with guidance regarding the type of changes to the business plan that 
would be material. The OCC has developed a policy addressing the 
circumstances that constitute a ``significant deviation'' from a 
national bank's existing business plan or operations and circumstances 
under which we will impose a written condition requiring a bank to 
provide notice of any significant deviation. This ``OCC Significant 
Deviation Policy'' is posted on our website as a sample to the Charters 
Booklet of the Comptroller's Licensing Manual.\6\ We expect that this 
policy will provide the guidance commenters are seeking with respect to 
the changes we think should prompt the notice required by Sec.  5.32. 
In order to make the final rule consistent with this Policy, we have 
changed the references to ``material change'' in the proposal to 
``significant deviation.''
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    \6\ This policy can be found on the OCC's Web site at http://www.occ.treas.gov/corpbook/forms/SigDevPolicy8-03.pdf. The policy 
defines a significant deviation from a bank;s business plan or 
operations to include, but not be limited to, a material deviation 
or material change in the bank's: (1) Projected growth, such as 
planning significant growth in a product or service; (2) strategy or 
philosophy, such as significantly reducing the emphasis of its 
targeted niche (for example, small business lending) in favor of 
significant expansion of another area (for example, funding large 
commercial real estate projects); (3) lines of business, such as 
intiating a new program for sub-prime lending; (4) funding sources 
such as shifting from core deposits to brokered deposits; (5) scope 
of activities, such as establishing transactional Internet banking 
or entering new, untested markets; (6) stock benefit plans for de 
novo banks, including the introduction of plans that were not 
previously reviewed during the chartering process with no objection 
by the OCC; and (7) relationships with a parent company or 
affiliate, such as a shift to signficant reliance on a parent or 
affiliate as a funding source or provider of back office support.
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    Paragraph (d)(2) of proposed Sec.  5.32 implemented the statutory 
requirements that apply to the content of the reorganization plan. The 
plan must: (1) Specify how the reorganization is to be carried out; (2) 
be approved by a majority of the national bank's board of directors; 
(3) specify the amount and type of consideration that the bank holding 
company will provide for the stock of the bank, the date on which the 
shareholders' rights to participate in the exchange are to be 
determined, and the procedure for carrying out the exchange; (4) be 
submitted to the shareholders of the reorganizing bank at a meeting 
called in accordance with the procedures outlined in section 3 of the 
Merger Act;\7\ and (5) where applicable, describe any changes to the 
bank's business plan resulting from the reorganization. Consistent with 
section 3 of the Merger Act, the proposal also required that at least 
two-thirds of the bank's shareholders approve a reorganization.
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    \7\ Section 3 of the Merger Act, 12 U.S.C. 215a(a)(2), provides 
generally that a shareholders' meeting will be called by the bank's 
directors after publishing notice of the time, place, and object of 
the meeting for four consecutive weeks in a newspaper of general 
circulation where the bank is located and after sending notice to 
each shareholder of record by certified or registered mail at least 
10 days prior to the meeting.
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    Paragraph (d)(3) of proposed Sec.  5.32 provided that the OCC will 
review the financial and managerial resources and future prospects of 
the national bank when considering a section 1204 reorganization.
    Proposed Sec.  5.32(e) provided dissenters' rights protections for 
section 1204 reorganizations. As provided in the Merger Act, this 
paragraph would permit any shareholder who has voted against the 
reorganization at a meeting or given notice in writing at or prior to 
the meeting to receive the value of his or her shares by providing a 
written request to the bank within 30 days after the consummation of 
the reorganization.
    Section 5.32(f) of the proposal stated that Sec.  5.32 does not 
affect the applicability of the BHCA to a transaction covered under 
Sec.  5.32(b); applicants must indicate in their Sec.  5.32 
applications the status of any BHCA application they are required to 
file with the Board of Governors of the Federal Reserve System.
    Proposed paragraph (g) of Sec.  5.32 stated that the OCC's approval 
of a Sec.  5.32 application will expire if a national bank has not 
completed the reorganization within one year of the date of such 
approval. A commenter suggested that the OCC incorporate flexibility 
into this provision for complicated transactions that may take longer 
than one year to complete by permitting banks to apply for a waiver of 
this restriction. We do not think it is necessary to amend the 
regulation to establish a formal waiver process, but we will evaluate 
the need for an extension of the standard time frame on a case-by-case 
basis in accordance with 5.13(g).\8\
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    \8\ This section provides that the OCC generally does not grant 
extensions unless the delay is beyond the control of the applicant.
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    Finally, proposed paragraph (h)(1) stated that applicants shall 
inform shareholders of all material aspects of a reorganization and 
comply with applicable requirements in the Federal securities laws and 
the OCC's securities regulations in 12 CFR part 11. Proposed paragraph 
(h)(2) stated that applicants that are not subject to registration 
requirements under the Securities Exchange Act of 1934 shall submit 
proxy materials or information statements used in connection with a 
reorganization to the appropriate OCC district office no later than 
when such materials are sent to shareholders.
    We received no comments regarding proposed Sec.  5.32 other than 
those we have discussed. Accordingly, we are adopting this provision as 
proposed with the changes just described.
2. Section 1206 Mergers--Revised Sec.  5.33
    Section 1206 of the AHEOA provided new authority for a national 
bank to merge with one or more of its nonbank affiliates, subject to 
the OCC's approval.

[[Page 70124]]

Current Sec.  5.33 sets forth application and notice procedures for 
national banks entering into business combinations, such as mergers or 
consolidations, with other national banks or state-chartered banks, as 
well as OCC review and approval standards for such transactions. The 
proposal contained amendments to Sec.  5.33 to include Section 1206 
Mergers within its scope.
    The proposal added new application and prior OCC approval 
requirements for Section 1206 Mergers at the end of redesignated Sec.  
5.33(c). These requirements are similar to those for mergers of a 
national bank or state bank into a national bank under 12 U.S.C. 215a.
    A number of new definitions were added to Sec.  5.33(d) in order to 
implement section 1206. Current Sec.  5.33(d) defines only the terms 
``business combination,'' ``business reorganization,'' ``home state,'' 
and ``interim bank.'' The proposal amended the definition of ``business 
combination'' to include Section 1206 Mergers, but left the definitions 
of the other three terms unchanged.
    Proposed Sec.  5.33(d)(1) added a definition of ``bank'' and 
defined it as any national bank or state bank. This definition was 
added because the term is used in the definition for ``nonbank 
affiliate.''
    Proposed Sec.  5.33(d)(4) defined the term ``company'' to mean a 
corporation, limited liability company, partnership, business trust, 
association, or similar organization. This term was proposed to be 
added because it is used in the definition of ``nonbank affiliate'' and 
``control.''
    Proposed Sec.  5.33(d)(5) defined ``control,'' which is used in the 
definition of ``nonbank affiliate.'' Under the proposal, for business 
combinations under Sec.  5.33(g)(4) and (5), a company or shareholder 
would be deemed to control another company if (1) the company or 
shareholder directly or indirectly, or acting through one or more other 
persons, owns, controls, or has power to vote 25 per cent or more of 
any class of voting securities of the other company; or (2) the company 
or shareholder controls in any manner the election of a majority of the 
directors or trustees of the other company.
    Because section 1206 provides merger authority for entities 
previously not included within the scope of Sec.  5.33, the proposal 
added the definition of ``nonbank affiliate'' to describe the entities 
that are covered by section 1206. Proposed Sec.  5.33(d)(8) defined 
``nonbank affiliate'' of a national bank as any company that controls, 
is controlled by, or is under common control with the national bank. 
Banks and Federal savings associations were not included as 
``affiliates'' because mergers with such entities are governed by 
statutes other than section 1206. Nonbank subsidiaries would be 
considered to be nonbank affiliates for purposes of Sec.  5.33.
    Section 5.33(e)(3)(ii) currently requires that, if as a result of a 
business combination, a national bank obtains control of a new 
subsidiary, the bank must provide the same information regarding the 
new subsidiary's activities that would be required if the applicant 
were establishing a new subsidiary under either 12 CFR 5.34 (which 
addresses operating subsidiaries) or 12 CFR 5.39 (which addresses 
financial subsidiaries). The current rule contains an exception if the 
subsidiary was a subsidiary of a national bank. The proposal modified 
this provision to take into account the fact that the bank may now 
merge with a nonbank affiliate that has a subsidiary.
    Section 5.33(f) sets forth exceptions to the rules that generally 
govern the OCC's application procedures, such as requirements for the 
publication of notice or for hearings. Pursuant to Sec.  5.33(f)(1), a 
national bank applicant that is subject to specific statutory notice 
requirements for business combinations is not subject to Sec.  5.8(a), 
(b), or (c), which requires, and prescribes the timing and contents of, 
public notice. Instead, a national bank applicant must follow the 
notice requirements in the applicable statute.
    A national bank applicant in a Section 1206 Merger resulting in a 
national bank would be required to follow the notice requirements of 12 
U.S.C. 215a. A national bank applicant in a Section 1206 Merger 
resulting in a nonbank affiliate would be required to follow the notice 
requirements of 12 U.S.C. 214a. We proposed to amend Sec.  5.33(f)(1) 
by adding references to the special procedures to be followed in 
Section 1206 Mergers. We did not receive any comments on the foregoing 
provisions and, therefore, we adopt them as proposed.
    In addition, we proposed to state in Sec.  5.33(f)(1) that 
Sec. Sec.  5.10 (regarding public comments) and 5.11(regarding requests 
for hearings) are not applicable as a general rule to Section 1206 
Mergers. However, we also reserved the discretion to determine that 
some or all of the provisions in Sec.  5.10 and Sec.  5.11 apply in a 
Section 1206 Merger if an application presents significant and novel 
policy, supervisory, or legal issues.
    A few commenters urged the OCC to make the provisions in Sec. Sec.  
5.10 and 5.11 applicable to all Section 1206 Mergers either because 
this type of merger is unprecedented and likely to raise many important 
issues or because these mergers would result in arbitrary or uneven 
application of the Community Reinvestment Act (CRA)\9\ and fair lending 
laws. For several reasons we decline to adopt the commenters' 
suggestion to impose a notice requirement in every Section 1206 Merger. 
First, if an insured national bank is involved in the merger, FDIC 
approval is required under the Bank Merger Act.\10\ That approval 
requires publication of notice and provides for public comment. Second, 
where the national bank involved in the merger is uninsured, such as a 
trust bank, the OCC may determine on a case-by-case basis that an 
application presents significant and novel policy, supervisory, or 
legal issues and that public notice is, therefore, warranted. This 
standard covers the situations identified by commenters as appropriate 
for notice and hearings. Evaluating the need for public notice, or a 
hearing, on a case-by-case basis also avoids unnecessary burdens. In 
addition, we note that CRA is not applicable to transactions where no 
deposit facility is being acquired. Therefore, we decline the 
commenters' suggestion to impose a notice requirement in every Section 
1206 Merger.
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    \9\ 12 U.S.C. 2901 et seq.
    \10\ 12 U.S.C. 1828(c).
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    Finally, we proposed to make two technical changes to paragraph 
(f)(1). The reference to paragraph (g) for mergers or consolidations 
with a Federal savings association would be amended to refer more 
specifically to paragraph (g)(2) and the reference to a resulting state 
bank in the parenthetical following this reference would be corrected 
to refer to a national bank. No comments were received on these 
provisions. For the reasons discussed above, we adopt Sec.  5.33(f) as 
proposed.
    The proposal also added a new Sec.  5.33(g)(4) to address Section 
1206 Mergers of national banks with their nonbank affiliates when the 
resulting entity is a national bank. Section 5.33(g)(4)(i) stated that 
a national bank may enter into this type of Section 1206 Merger when 
the law of the state or other jurisdiction under which the nonbank 
affiliate is organized allows the nonbank affiliate to engage in such 
mergers. This section also required a national bank to obtain the OCC's 
approval.
    One commenter suggested that we modify the regulation to specify 
that a merger between an insured national bank and its nonbank 
affiliate must

[[Page 70125]]

receive prior approval by the FDIC. As noted above, if the national 
bank involved is insured, the transaction is also subject to approval 
by the FDIC under the Bank Merger Act. For purposes of clarification, 
we have added this language to the final rule. In addition, we have 
also added language stating that in determining whether to approve a 
merger under this section, the OCC will consider the purpose of the 
transaction, its impact on the safety and soundness of the bank, and 
any effect on the bank's customers. The OCC may deny the merger if it 
would have a negative effect on any of these factors.
    A few commenters questioned the OCC's decision to condition the 
merger of a nonbank affiliate on whether the law of the state or other 
jurisdiction under which the affiliate is organized permits the 
affiliate to participate in such a merger. These commenters contended 
that there is no such requirement in the statute and that this 
condition encourages states to discriminate against national banks by 
enacting laws that prohibit this type of merger. One commenter 
suggested that this requirement be revised to permit the merger where 
the state's law permits a merger between the nonbank affiliate and any 
other body corporate. We believe the language of the proposal as 
drafted already achieves this result. The proposal required only that 
the state statute permit such a merger. As long as this is the case, 
the state statute providing merger authority need not specifically 
mention national banks. For these reasons, the state law provision is 
retained in the final rule.
    Proposed Sec.  5.33(g)(4)(ii) stated that a national bank entering 
into such a merger must follow the procedures and requirements 
contained in 12 U.S.C. 215a (which addresses the merger of state banks 
into national banks), as if the nonbank entity were a state bank. The 
proposal applied the procedures and requirements in 12 U.S.C. 215a 
because section 215a addresses the same issues that arise in a Section 
1206 Merger and its requirements are familiar to national banks. In 
addition, we believe that these procedures and requirements impose the 
least amount of burden on the participants consistent with our 
supervisory objectives in reviewing the proposed transactions. We 
received no comments on this provision and, therefore, adopt it as 
proposed.
    Proposed Sec.  5.33(g)(4)(iii) stated that a nonbank affiliate 
entering into such a merger is to follow the procedures in the law of 
the state or other jurisdiction under which the nonbank entity is 
organized. Two commenters disagreed with the use of state law 
procedures for mergers of a nonbank affiliate into a national bank. One 
commenter contended that there is no such requirement in the statute 
and that it has the effect of requiring the national bank to follow 
both state and Federal law, which may be in conflict. We note, however, 
that in a merger of a state bank into a national bank, the state bank 
follows the procedures for mergers in state law. Proposed Sec.  
5.33(g)(4)(iii) simply treats nonbank affiliates the same as state 
banks by requiring them to follow the procedures contained in the law 
of the state in which they are incorporated. We believe that this 
similarity of treatment is appropriate and, therefore, have adopted 
this provision as proposed.
    Proposed Sec.  5.33(g)(4)(iv) stated that the rights of dissenting 
shareholders and appraisal of dissenters' shares of stock in the 
nonbank entity shall be determined in accordance with the laws of the 
state or other jurisdiction under which the nonbank entity is 
organized. We received no comments suggesting changes to this section 
of the proposed rule and have, therefore, adopted it as proposed.
    Proposed Sec.  5.33(g)(4)(v) of the proposal stated that the 
corporate existence of each institution participating in the merger 
shall be continued in the resulting national bank, and all the rights, 
franchises, property, appointments, liabilities, and other interests of 
the participating institutions shall be transferred to the resulting 
national bank in the same manner and to the same extent as in a merger 
between a national bank and a state bank under 12 U.S.C. 215a, as if 
the nonbank affiliate were a state bank. A few commenters suggested 
that this provision state that a national bank resulting from a merger 
with a nonbank affiliate may not exercise any power or engage in any 
activity that would not be permissible for a national bank under 
applicable provisions of Federal law other than section 215a-3. We note 
that this language is already set forth specifically in the statute at 
12 U.S.C. 215a-3(b)(2). In addition, current Sec.  5.33(e)(5) states 
that the OCC generally requires a national bank to discontinue 
nonconforming activities within a reasonable time following a business 
combination. This provision would be applicable to transactions under 
Sec.  5.33(g)(4). Because the statute and our rules already address 
this point, we believe no further clarification is required, and we 
have adopted the provision as proposed.
    The proposal also added a new Sec.  5.33(g)(5), which addressed 
section 1206 Mergers of uninsured national banks with their nonbank 
affiliates when the resulting entity is a nonbank affiliate. The 
proposal limited this type of section 1206 Merger to national banks 
that are not insured banks (as defined in 12 U.S.C. 1813(h)). Prior to 
the enactment of section 1206, there was no efficient way for a 
national bank to cease its deposit-taking business, surrender its 
charter, and combine its business with that of an affiliate because no 
statutory provisions addressed this type of transaction. The section 
1206 authority allows this transaction to take place in a merger and 
therefore allows the OCC to establish the procedures necessary when an 
uninsured national bank wishes to surrender its national charter but 
continue conducting lines of business that are authorized for the 
nonbank affiliate.
    Proposed Sec.  5.33(g)(5)(i) stated that this type of section 1206 
Merger may be entered into when the law of the state or other 
jurisdiction under which the nonbank affiliate is organized allows such 
mergers. It also provided that an uninsured national bank must obtain 
the OCC's approval for the transaction. As was done in Sec.  
5.33(g)(4)(i), we have added language to the final rule in Sec.  
5.33(g)(5)(i) stating that the OCC will consider the purpose of the 
transaction, its impact on the safety and soundness of the bank, and 
any effect on the bank's customers. The OCC may deny the merger if it 
would have a negative effect on any of these factors.
    Proposed Sec.  5.33(g)(5)(ii) stated that a national bank entering 
into such a merger shall follow the procedures and requirements 
contained in 12 U.S.C. 214a (which addresses the merger of national 
banks into state banks), as if the nonbank entity were a state bank. 
Section 5.33(g)(5)(iii) stated that a nonbank affiliate entering into 
such a merger shall follow the procedures and requirements in the law 
of the state or other jurisdiction under which the nonbank entity is 
organized. Section 5.33(g)(5)(iv) of the proposal stated that 
dissenting national bank shareholders may receive in cash the value of 
their national bank shares if they comply with the requirements of 12 
U.S.C. 214a as if the nonbank affiliate were a state bank. That section 
also stated that the OCC may conduct an appraisal or reappraisal of 
dissenters' shares of stock in a national bank involved in a merger 
with a nonbank affiliate that results in a nonbank affiliate if all 
parties agree that the determination is final and binding on each party 
and agree on how the OCC's expenses relating to the appraisal will be 
divided among the parties and paid to the OCC. The proposal provided 
that rights of

[[Page 70126]]

dissenting shareholders and appraisal of dissenters' shares of stock in 
the nonbank entity shall be determined in accordance with the laws of 
the state or other jurisdiction under which the nonbank entity is 
organized. We received no comments on these provisions and adopt them 
as proposed.
    Proposed Sec.  5.33(g)(5)(v) stated that the corporate existence of 
each entity participating in the merger shall be continued in the 
resulting nonbank affiliate, and all the rights, franchises, property, 
appointments, liabilities, and other interests of the participating 
national bank shall be transferred to the resulting nonbank affiliate 
as set forth in 12 U.S.C. 214b, in the same manner and to the same 
extent as in a merger between a national bank and a state bank under 12 
U.S.C. 214a, as if the nonbank affiliate were a state bank. A number of 
commenters suggested that we clarify that where the surviving entity is 
a nonbank affiliate, it does not succeed to any of the powers of the 
national bank, and that the national bank and its powers cease to 
exist. We agree that a national bank ceases to exist following 
consummation of a section 1206 Merger and that a surviving nonbank 
affiliate will not be permitted to exercise powers of the former 
national bank except to the extent permitted under state law or other 
law applicable to the resulting nonbank affiliate. The wording of the 
regulation does not say otherwise, however and in our view it is 
important to be clear that the surviving nonbank affiliate does enjoy 
corporate succession to the corporate rights, franchises, property, 
appointments, liabilities, and other interests of the former national 
bank. This is the same result as when a national bank merges into a 
state bank under 12 U.S.C. 214a and 214b. We do not believe that any 
change to the regulation is necessary by virtue of these comments and 
adopt this provision as proposed.
    Finally, the proposal added a new paragraph (j)(1)(iv) to Sec.  
5.33 that permits applications for certain transactions under Sec.  
5.33(g)(4) to receive streamlined treatment. In order to qualify for 
such treatment, the acquiring bank must be an eligible bank, the 
resulting national bank must be well capitalized immediately following 
consummation of the transaction, the applicants in a prefiling 
communication must request and obtain approval from the appropriate 
district office to use the streamlined application, and the total 
assets acquired in the transaction must not exceed 10 percent of the 
total assets of the acquiring national bank, as reported in the bank's 
Consolidated Report of Condition and Income filed for the quarter 
immediately preceding the filing of the application. We received no 
comments on this provision and adopt it as proposed.
3. National Bank Directors--Sec.  7.2024 (new)
    Section 1205 of the AHEOA amended section 5145 of the Revised 
Statutes of the United States (12 U.S.C. 71) and section 31 of the 
Banking Act of 1933 (12 U.S.C. 71a) regarding national bank directors. 
Section 1205 increases the maximum term a director may serve from one 
to not more than three years and permits a national bank to adopt 
bylaws that provide for staggering the terms of its directors in 
accordance with the OCC's regulations. In addition, this section 
permits the OCC to exempt a national bank from the otherwise applicable 
requirement that it have no more than 25 directors.
    The proposal added a new Sec.  7.2024 conforming the OCC's rules to 
these provisions. Pursuant to proposed Sec.  7.2024(a), national banks 
may adopt bylaws that provide for staggering the terms of their 
directors. Proposed Sec.  7.2024(b) increased the permissible maximum 
term of national bank directors from one year to three years. Finally, 
paragraph (c) provided that a national bank may increase the size of 
its board of directors above the statutory limit of 25 provided that 
the bank satisfies the notice requirements set out in that section. We 
received two comments on this provision, both of which supported the 
proposal. Accordingly, we adopt it as proposed.

II. Additional Changes to Parts 5, 7, 9, and 34

A. Part 5 Amendments

    The final rule also revised three other provisions in part 5 of our 
regulations. Section 5.20 of our regulations contains the requirements 
that govern the organization of a national bank. The proposal amended 
Sec.  5.20(e)(1) to provide that the newly organized bank may be a 
special purpose national bank that limits its activities to fiduciary 
activities or to any other activities within the business of banking. 
The purpose of this proposed change was to clarify that a limited 
purpose national bank may exist with respect to activities other than 
fiduciary activities, provided the activities in question are part of 
the business of banking. Some commenters expressed concern that this 
provision was too broad and that the expansion of the limited purpose 
charter had the potential to exclude from state oversight entities 
conducting activities only loosely related to banking. We agree that it 
is appropriate to provide further clarification of the scope of 
activities permissible for a limited purpose national bank, and we have 
amended this provision to require limited purpose national banks to 
conduct at least one of the following core banking functions: (1) 
Receiving deposits; (2) paying checks; or (3) lending money. These 
functions are based on 12 U.S.C. 36, which identifies activities that 
cause a facility to be considered a bank branch.
    Section 5.33(e) of our regulations contains a listing of factors 
the OCC considers in evaluating applications for business combinations. 
These factors are based upon the factors set forth in the Bank Merger 
Act and the CRA. As part of the USA PATRIOT Act,\11\ Congress amended 
the Bank Merger Act by adding a factor to be considered in evaluating 
merger transactions. This factor requires the responsible agencies to 
consider the effectiveness of any insured depository institution 
involved in a proposed merger in combating money laundering 
activities.\12\ The proposal conformed our regulations with the statute 
by adding the factor at Sec.  5.33(e)(1)(v).
---------------------------------------------------------------------------

    \11\ Pub. L. 107-56, 115 Stat. 272 (Oct. 26, 2001).
    \12\ The FDIC recently updated its Statement of Policy on Bank 
Merger Transactions to include this new factor at 67 FR 48178 (July 
23, 2002). This update only provides the new provision. The complete 
Policy Statement as it existed before this update may be found at 63 
FR 44761 (August 20, 1998).
---------------------------------------------------------------------------

    Finally, current Sec.  5.34(e)(5)(iv) permits certain national 
banks to acquire or establish an operating subsidiary or perform a new 
activity in an existing operating subsidiary by providing after-the-
fact notice to the OCC if the operating subsidiary conducts certain 
activities listed in Sec.  5.34(e)(5)(v). That list currently includes 
the underwriting of credit-related insurance consistent with section 
302 of the Gramm-Leach-Bliley Act. Since the list was last revised, the 
OCC has determined, in Corporate Decision 2001-10 (April 23, 2001) and 
Corporate Decision 2000-16 (August 29, 2000), that credit-related 
reinsurance products satisfy GLBA section 302's statutory requirements 
and are ``authorized products.'' The proposal therefore amended 12 CFR 
5.34(e)(5)(v)(L) to add reinsuring of credit-related insurance to the 
list of activities eligible for after-the-fact notice requirements.
    We received no comments on these proposed changes to Sec. Sec.  
5.33(e) or 5.34(e) and therefore adopt these changes as proposed.

[[Page 70127]]

B. Part 7 Amendment

    As corporate transactions have become more sophisticated, an 
integral part of financial and transactional advice with respect to 
mergers and other corporate restructurings inevitably involves 
providing advice on the tax implications of those transactions. 
Recently amended Sec.  5.34(e)(5)(v)(J) and (K) permit national banks 
to provide tax planning services and to provide financial and 
transactional advice on structuring, arranging, and executing financial 
transactions, including mergers, acquisitions, and divestitures. 
Providing tax planning services encompasses tax consulting in order for 
a bank to be able to offer comprehensive services in this area. 
Accordingly, the proposal deleted as outdated the prohibition against 
serving as an expert tax consultant that currently appears at Sec.  
7.1008.\13\ We received no comments regarding this change, and 
therefore adopt it as proposed.
---------------------------------------------------------------------------

    \13\ National banks engaged in providing the services permitted 
by 12 CFR 5.34(e)(5)(v)(J) and (K) must comply with applicable 
regulations of the Internal Revenue Service (IRS) governing the 
provision of such services. Information about the IRS regulations 
may be obtained at www.irs.treas.gov.
---------------------------------------------------------------------------

C. Part 9 Amendment

    Currently, 12 CFR 9.18(b)(4)(i) requires valuation of collective 
investment funds at least every three months. However, certain funds 
are only required to be valued once a year. Those funds must be 
``(a)(2) funds'' (i.e., funds that may be held pursuant to 12 CFR 
9.18(a)(2) that are primarily invested in real estate or other assets 
that are not readily marketable). A growing number of collective 
investment funds, including (a)(1) funds, however, are comprised of a 
mix of assets that are readily marketable and assets that are not 
readily marketable. Those funds do not qualify for the one-year 
valuation because they are not (a)(2) funds primarily invested in real 
estate or other assets that are not readily marketable. However, a one-
year valuation may be appropriate for assets in those funds that are 
not readily marketable. Thus, we proposed to amend the regulation to 
require quarterly valuation of readily marketable assets in all 
collective investment funds, including (a)(1) funds. Assets that are 
not readily marketable must be valued at least once a year regardless 
of whether the assets are in (a)(1) or (a)(2) funds or whether the 
funds' assets are primarily invested in real estate or other assets 
that are not readily marketable. For purposes of an admission or 
withdrawal date, this provision does not negate the need to provide a 
current value at the time of such admission or withdrawal. We received 
no comments regarding this change, and therefore adopt it as proposed.

D. Part 34 Amendment

    Section 34.3 restates the comprehensive authority vested in the OCC 
by 12 U.S.C. 371 to regulate real estate lending by national banks. 
Section 371 authorizes national banks to engage in real estate lending 
subject to 12 U.S.C. 1828(o) (real estate lending safety and soundness 
standards) and ``such restrictions and requirements as the Comptroller 
of the Currency may prescribe by regulation or order.'' The cross-
reference to 12 U.S.C. 1828(o) was added to the statute in 1991, but 
the text of the regulation was never revised to reflect it. Thus, the 
proposal updated the regulation to reflect that change to the 
underlying statute. Other portions of the regulation remain 
unchanged.\14\ We received no comments regarding this change, and 
therefore adopt it as proposed.
---------------------------------------------------------------------------

    \14\ We have proposed additional changes to part 34 in a 
separate rulemaking that invites comment on changes to the 
provisions governing preemption. See 68 FR 46119 (Aug. 5, 2003). The 
comment period for that rulemaking closed October 6, 2003.
---------------------------------------------------------------------------

III. Technical Amendments

    The proposal contained the following technical amendments:
    [sbull] 12 CFR part 3, appendix A, section 3(a)(2)(ix) currently 
cross-references a definition of ``General obligation of a State or 
political subdivision'' but contains the wrong regulatory citation for 
that definition. The definition in question has been moved from 12 CFR 
1.3(g) to 12 CFR 1.2(b). The proposed revision corrected the citation. 
Also in part 3 appendix A, section 4(a)(11)(ii), the references to 
section 4(a)(8)(i) and (ii) were corrected to refer to section 
4(a)(9)(i) and (ii), respectively.
    [sbull] The citations to FDIC regulations in current 12 CFR 
6.4(c)(1)(i) and (ii) are incorrect. The proposal amended the citations 
to correct them.
    [sbull] Current 12 CFR 7.1016(a) contains a footnote reference and 
accompanying footnote text. The footnote reference number is 30, but 
should be 1. The proposal made this change.
    [sbull] Current 12 CFR 9.20(b) contains a reference to SEC rules 17 
CFR 240.17Ad-1 through 240.17Ad-16. A new rule, at 17 CFR 240.17Ad-17, 
has been added, so the proposal changed the reference to 240.17Ad-16 to 
reflect the addition.
    [sbull] Current 12 CFR 28.16(e), dealing with uninsured deposit 
notices, makes a reference to an FDIC regulation, 12 CFR 346.7, which 
was removed in 1998. The proposal corrected this citation to refer to 
the current rule for uninsured deposit notices, which can now be found 
at 12 CFR 347.207.
    We received no comments regarding these changes, and therefore 
adopt them as proposed.

IV. Regulatory Analysis

CDRI Act Delayed Effective Date

    This final rule takes effect 30 days after the date of its 
publication in the Federal Register, consistent with the delayed 
effective date requirement of the Administrative Procedure Act. See 5 
U.S.C. 553(d). Section 302 of the Riegle Community Development and 
Regulatory Improvement Act of 1994 (CDRI Act), 12 U.S.C. 4802(b), 
provides that regulations that impose additional reporting, disclosure, 
or other requirements on insured depository institutions may not take 
effect before the first day of the quarter following publication unless 
the agency finds that there is good cause to make the rule effective at 
an earlier date. The regulations in this final rule provide procedures 
to be used by national banks wishing to take advantage of the new 
transactions or corporate governance options permitted by the AHEOA. 
The regulations make it easier for national banks to exercise this new 
statutory authority. Accordingly, the OCC finds that there is good 
cause to dispense with the requirements of the CDRI Act.

Regulatory Flexibility Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act, 5 
U.S.C. 605(b) (RFA), the regulatory flexibility analysis otherwise 
required under section 604 of the RFA is not required if the agency 
certifies that the rule will not have a significant economic impact on 
a substantial number of small entities and publishes its certification 
and a short, explanatory statement in the Federal Register along with 
its rule.
    Pursuant to section 605(b) of the RFA, the OCC hereby certifies 
that this final rule will not have a significant economic impact on a 
substantial number of small entities. Accordingly, a regulatory 
flexibility analysis is not needed. The amendments to the OCC's 
regulations relating to the AHOEA are permissive provisions that will 
be used only by banks that wish to take advantage of the new 
transactions, procedures, or corporate governance options permitted by 
the statute as implemented by the regulations. 12 CFR 5.33(g)(5) 
reduces burden by implementing a simpler way to

[[Page 70128]]

accomplish a merger of a national bank into one of its nonbank 
affiliates. The amendments simply provide the OCC's implementation of 
the AHEOA or make other technical changes to the rules to correct 
existing errors or clarify various points. They do not impose any new 
requirements or burdens. As such, they will not result in any adverse 
economic impact.

Executive Order 12866

    The OCC has determined that this final rule is not a significant 
regulatory action under Executive Order 12866.

Unfunded Mandates Reform Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 
104-4 (2 U.S.C. 1532) (Unfunded Mandates Act), requires that an agency 
prepare a budgetary impact statement before promulgating any rule 
likely to result in a Federal mandate that may result in the 
expenditure by State, local, and tribal governments, in the aggregate, 
or by the private sector of $100 million or more in any one year. If a 
budgetary impact statement is required, section 205 of the Unfunded 
Mandates Act also requires an agency to identify and consider a 
reasonable number of regulatory alternatives before promulgating a 
rule. The OCC has determined that this final rule will not result in 
expenditures by State, local, and tribal governments, or by the private 
sector, of $100 million or more in any one year. Accordingly, this 
rulemaking is not subject to section 202 of the Unfunded Mandates Act.

Paperwork Reduction Act

    The OCC may not conduct or sponsor, and a respondent is not 
required to respond to, an information collection unless it displays a 
currently valid Office of Management and Budget (OMB) control number.
    The information collection requirements in this final rule are 
contained in Sec. Sec.  5.32, 5.33, and 7.2024.
    OMB has reviewed and approved the information collection 
requirements under OMB Control Number 1557-0014, in accordance with the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.).
    The Comptroller's Corporate Manual (Manual) explains the OCC's 
policies and procedures for the formation of a new national bank, entry 
into the national banking system by other institutions, and corporate 
expansion and structural changes by existing national banks. The Manual 
embodies all required procedures, forms, and regulations regarding OCC 
corporate decisions.
    The information collection requirements imposed by Sec. Sec.  5.32 
and 5.33 are contained in the Business Combinations booklet in the 
Manual and are part of the total requirement.
    The respondents are national banks.
    Estimated number of respondents: 270.
    Estimated number of responses: 270.
    Average hours per response: 24.
    Estimated total burden hours: 5,580.
    The information collection requirements imposed by Sec.  7.2024 are 
included in the Corporate Organization booklet in the Manual, along 
with several other corporate requirements.
    The respondents are national banks.
    Estimated number of respondents: 1,000.
    Estimated number of responses: 1,000.
    Average hours per response: .5 hour.
    Estimated total burden hours: 500 hours.
    The burden estimates represent total burden for national banks' 
compliance with the information collection requirements associated with 
corporate organization matters and business combination activities.

Executive Order 13132

    Executive Order 13132 (Order) requires Federal agencies, including 
the OCC, to certify their compliance with that Order when they transmit 
to the Office of Management and Budget any draft final regulation that 
has Federalism implications. Under the Order, a regulation has 
Federalism implications if it has ``substantial direct effects on the 
States, on the relationship between the national government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government.'' In the case of a regulation that has 
Federalism implications and that preempts state law, the Order imposes 
certain consultation requirements with state and local officials; 
requires publication in the preamble of a Federalism summary impact 
statement; and requires the OCC to make available to the Director of 
the Office of Management and Budget any written communications 
submitted by state and local officials. By the terms of the Order, 
these requirements apply to the extent that they are practicable and 
permitted by law and, to that extent, must be satisfied before the OCC 
promulgates a final regulation. In the opinion of the OCC, this final 
rule does not have Federalism implications.

List of Subjects

12 CFR Part 3

    Administrative practice and procedure, National banks, Reporting 
and recordkeeping requirements.

12 CFR Part 5

    Administrative practice and procedure, National banks, Reporting 
and recordkeeping requirements, Securities.

12 CFR Part 6

    National banks.

12 CFR Part 7

    Credit, Insurance, Investments, National banks, Reporting and 
recordkeeping requirements, Securities, Surety bonds.

12 CFR Part 9

    Estates, Investments, National banks, Reporting and recordkeeping 
requirements, Trusts and trustees.

12 CFR Part 28

    Foreign banking, National banks, Reporting and recordkeeping 
requirements.

12 CFR Part 34

    Mortgages, National banks, Reporting and recordkeeping 
requirements.

Authority and Issuance

0
For the reasons set forth in the preamble, the OCC amends parts 3, 5, 
6, 7, 9, 28, and 34 of chapter I of title 12 of the Code of Federal 
Regulations as follows:

PART 3--MINIMUM CAPITAL RATIOS; ISSUANCE OF DIRECTIVES

0
1. The authority citation for part 3 continues to read as follows:

    Authority: 12 U.S.C. 93a, 161, 1818, 1828(n), 1828 note, 1831n 
note, 1835, 3907, and 3909.

Appendix A to Part 3--[Amended]

0
2. In appendix A to part 3:
0
a. In section 3, amend paragraph (a)(2)(ix) by removing ``12 CFR 
1.3(g)'' and adding in its place ``12 CFR 1.2(b)''; and
0
b. In section 4, amend paragraph (a)(11)(ii) by removing, ``section 
(4)(a)(8)(i) and (ii)'' and adding in its place ``section (4)(a)(9)(i) 
and (ii)''.
* * * * *

PART 5--RULES, POLICIES, AND PROCEDURES FOR CORPORATE ACTIVITIES

0
3. The authority citation for part 5 is revised to read as follows:


[[Page 70129]]


    Authority: 12 U.S.C. 1 et seq., 93a; 215a-2; 215a-3; and section 
5136A of the Revised Statutes (12 U.S.C. 24a).

Subpart B--Initial Activities

0
4. In Sec.  5.20, add new second and third sentences to paragraph 
(e)(1) to read as follows:


Sec.  5.20  Organizing a bank.

* * * * *
    (e) Statutory requirements--(1) General. * * * The bank may be a 
special purpose bank that limits its activities to fiduciary activities 
or to any other activities within the business of banking. A special 
purpose bank that conducts activities other than fiduciary activities 
must conduct at least one of the following three core banking 
functions: receiving deposits; paying checks; or lending money. * * *
* * * * *

Subpart C--Expansion of Activities

0
5. Add a new Sec.  5.32 to Subpart C to read as follows:


Sec.  5.32  Expedited procedures for certain reorganizations.

    (a) Authority. 12 U.S.C. 93a and 215a-2.
    (b) Scope. This section prescribes the procedures for OCC review 
and approval of a national bank's reorganization to become a subsidiary 
of a bank holding company or a company that will, upon consummation of 
such reorganization, become a bank holding company. For purposes of 
this section, a ``bank holding company'' means any company that owns or 
controls a national bank, or will own or control one as a result of the 
reorganization.
    (c) Licensing requirements. A national bank shall submit an 
application to, and obtain approval from, the OCC prior to 
participating in a reorganization described in paragraph (b) of this 
section.
    (d) Procedures--(1) General. An application filed in accordance 
with this section shall be deemed approved on the 30th day after the 
OCC receives the application, unless the OCC notifies the bank 
otherwise. Approval is subject to the condition that the bank provide 
the OCC with 60 days' prior notice of any significant deviation from 
the bank's business plan or any significant deviation from the proposed 
changes to the bank's business plan described in the bank's plan of 
reorganization.
    (2) Reorganization plan. The application must include a 
reorganization plan that:
    (i) Specifies the manner in which the reorganization shall be 
carried out;
    (ii) Is approved by a majority of the entire board of directors of 
the national bank;
    (iii) Specifies:
    (A) The amount and type of consideration that the bank holding 
company will provide to the shareholders of the reorganizing bank for 
their shares of stock of the bank;
    (B) The date as of which the rights of each shareholder to 
participate in that exchange will be determined; and
    (C) The manner in which the exchange will be carried out;
    (iv) Is submitted to the shareholders of the reorganizing bank at a 
meeting to be held at the call of the directors in accordance with the 
procedures prescribed in connection with a merger of a national bank 
under section 3 of the National Bank Consolidation and Merger Act, 12 
U.S.C. 215a(a)(2); and
    (v) Describes any changes to the bank's business plan resulting 
from the reorganization.
    (3) Financial and managerial resources and future prospects. In 
reviewing an application under this section, the OCC will consider the 
impact of the proposed affiliation on the financial and managerial 
resources and future prospects of the national bank.
    (e) Rights of dissenting shareholders. Any shareholder of a bank 
who has voted against an approved reorganization at the meeting 
referred to in paragraph (d)(2)(iv) of this section, or who has given 
notice of dissent in writing to the presiding officer at or prior to 
that meeting, is entitled to receive the value of his or her shares by 
providing a written request to the bank within 30 days after the 
consummation of the reorganization, as provided by section 3 of the 
National Bank Consolidation and Merger Act, 12 U.S.C. 215a(b) and (c), 
for the merger of a national bank.
    (f) Approval under the Bank Holding Company Act. This section does 
not affect the applicability of the Bank Holding Company Act of 1956. 
Applicants shall indicate in their application the status of any 
application required to be filed with the Board of Governors of the 
Federal Reserve System.
    (g) Expiration of approval. Approval expires if a national bank has 
not completed the reorganization within one year of the date of 
approval.
    (h) Adequacy of disclosure. (1) An applicant shall inform 
shareholders of all material aspects of a reorganization and comply 
with applicable requirements of the Federal securities laws, including 
the OCC's securities regulations at 12 CFR part 11.
    (2) Any applicant not subject to the registration provisions of the 
Securities Exchange Act of 1934 shall submit the proxy materials or 
information statements it uses in connection with the reorganization to 
the appropriate district office no later than when the materials are 
sent to the shareholders.

0
6. In Sec.  5.33:
0
a. revise paragraph (a);
0
b. paragraph (b) is redesignated as paragraph (c), paragraph (c) is 
redesignated as paragraph (b), newly redesignated paragraph (b) is 
revised and a sentence is added at the end of newly redesignated 
paragraph (c);
0
c. paragraphs (d)(1), (d)(2), (d)(3), and (d)(4) are redesignated as 
paragraphs (d)(2), (d)(3), (d)(6), and (d)(7), respectively; revise 
newly designated paragraph (d)(2); and add new paragraphs (d)(1), 
(d)(4), (d)(5), and (d)(8);
0
d. add new paragraph (e)(1)(v);
0
e. revise paragraph (e)(3)(ii);
0
f. revise the second sentence of paragraph (f)(1) and add two new 
sentences at the end of the paragraph;
0
g. add new paragraphs (g)(4) and (g)(5);
0
h. at the end of paragraph (j)(1)(ii), remove the term ``or'';
0
i. at the end of paragraph (j)(1)(iii), remove ``.'' and add ``; or''; 
and
0
j. add new paragraph (j)(1)(iv) to read as follows:


Sec.  5.33  Business combinations.

    (a) Authority. 12 U.S.C. 24(Seventh), 93a, 181, 214a, 214b, 215, 
215a, 215a-1, 215a-3, 215c, 1815(d)(3), 1828(c), 1831u, and 2903.
    (b) Scope. This section sets forth the provisions governing 
business combinations and the standards for:
    (1) OCC review and approval of an application for a business 
combination between a national bank and another depository institution 
resulting in a national bank or between a national bank and one of its 
nonbank affiliates; and
    (2) Requirements of notices and other procedures for national banks 
involved in other combinations with depository institutions.
    (c) Licensing requirements. * * * A national bank shall submit an 
application and obtain prior OCC approval for any merger between the 
national bank and one or more of its nonbank affiliates.
    (d) Definitions. (1) Bank means any national bank or any state 
bank.
    (2) Business combination means any merger or consolidation between 
a national bank and one or more depository institutions in which the 
resulting institution is a national bank, the acquisition by a national 
bank of all,

[[Page 70130]]

or substantially all, of the assets of another depository institution, 
the assumption by a national bank of deposit liabilities of another 
depository institution, or a merger between a national bank and one or 
more of its nonbank affiliates.
* * * * *
    (4) Company means a corporation, limited liability company, 
partnership, business trust, association, or similar organization.
    (5) For business combinations under Sec.  5.33(g)(4) and (5), a 
company or shareholder is deemed to control another company if:
    (i) Such company or shareholder, directly or indirectly, or acting 
through one or more other persons owns, controls, or has power to vote 
25 percent or more of any class of voting securities of the other 
company, or
    (ii) Such company or shareholder controls in any manner the 
election of a majority of the directors or trustees of the other 
company. No company shall be deemed to own or control another company 
by virtue of its ownership or control of shares in a fiduciary 
capacity.
* * * * *
    (8) Nonbank affiliate of a national bank means any company (other 
than a bank or Federal savings association) that controls, is 
controlled by, or is under common control with the national bank.
    (e) * * *
    (1) * * *
    (v) Money laundering. The OCC considers the effectiveness of any 
insured depository institution involved in the business combination in 
combating money laundering activities, including in overseas branches.
* * * * *
    (3) * * *
    (ii) An applicant proposing to acquire, through a business 
combination, a subsidiary of any entity other than a national bank must 
provide the same information and analysis of the subsidiary's 
activities that would be required if the applicant were establishing 
the subsidiary pursuant to Sec. Sec.  5.34 or 5.39.
* * * * *
    (f) Exceptions to rules of general applicability--(1) National bank 
applicant. * * * A national bank applicant shall follow, as applicable, 
the public notice requirements contained in 12 U.S.C. 1828(c)(3) 
(business combinations), 12 U.S.C. 215(a) (consolidation under a 
national bank charter), 12 U.S.C. 215a(a)(2) (merger under a national 
bank charter), paragraph (g)(2) of this section (merger or 
consolidation with a Federal savings association resulting in a 
national bank), paragraph (g)(4) of this section (merger with a nonbank 
affiliate under a national bank charter), and paragraph (g)(5) of this 
section (merger with nonbank affiliate not under national bank 
charter). Sections 5.10 and 5.11 do not apply to mergers of a national 
bank with its nonbank affiliate. However, if the OCC concludes that an 
application presents significant and novel policy, supervisory, or 
legal issues, the OCC may determine that some or all provisions in 
Sec. Sec.  5.10 and 5.11 apply.
* * * * *
    (g) * * *
    (4) Mergers of a national bank with its nonbank affiliates under 12 
U.S.C. 215a-3 resulting in a national bank. (i) With the approval of 
the OCC, a national bank may merge with one or more of its nonbank 
affiliates, with the national bank as the resulting institution, in 
accordance with the provisions of this paragraph, provided that the law 
of the state or other jurisdiction under which the nonbank affiliate is 
organized allows the nonbank affiliate to engage in such mergers. The 
transaction is also subject to approval by the FDIC under the Bank 
Merger Act, 12 U.S.C. 1828(c). In determining whether to approve the 
merger, the OCC shall consider the purpose of the transaction, its 
impact on the safety and soundness of the bank, and any effect on the 
bank's customers, and may deny the merger if it would have a negative 
effect in any such respect.
    (ii) A national bank entering into the merger shall follow the 
procedures of 12 U.S.C. 215a as if the nonbank affiliate were a state 
bank, except as otherwise provided herein.
    (iii) A nonbank affiliate entering into the merger shall follow the 
procedures for such mergers set out in the law of the state or other 
jurisdiction under which the nonbank affiliate is organized.
    (iv) The rights of dissenting shareholders and appraisal of 
dissenters' shares of stock in the nonbank affiliate entering into the 
merger shall be determined in the manner prescribed by the law of the 
state or other jurisdiction under which the nonbank affiliate is 
organized.
    (v) The corporate existence of each institution participating in 
the merger shall be continued in the resulting national bank, and all 
the rights, franchises, property, appointments, liabilities, and other 
interests of the participating institutions shall be transferred to the 
resulting national bank, as set forth in 12 U.S.C. 215a(a), (e), and 
(f) in the same manner and to the same extent as in a merger between a 
national bank and a state bank under 12 U.S.C. 215a(a), as if the 
nonbank affiliate were a state bank.
    (5) Mergers of an uninsured national bank with its nonbank 
affiliates under 12 U.S.C. 215a-3 resulting in a nonbank affiliate. (i) 
With the approval of the OCC, a national bank that is not an insured 
bank as defined in 12 U.S.C. 1813(h) may merge with one or more of its 
nonbank affiliates, with the nonbank affiliate as the resulting entity, 
in accordance with the provisions of this paragraph, provided that the 
law of the state or other jurisdiction under which the nonbank 
affiliate is organized allows the nonbank affiliate to engage in such 
mergers. In determining whether to approve the merger, the OCC shall 
consider the purpose of the transaction, its impact on the safety and 
soundness of the bank, and any effect on the bank's customers, and may 
deny the merger if it would have a negative effect in any such respect.
    (ii) A national bank entering into the merger shall follow the 
procedures of 12 U.S.C. 214a, as if the nonbank affiliate were a state 
bank, except as otherwise provided in this section.
    (iii) A nonbank affiliate entering into the merger shall follow the 
procedures for such mergers set out in the law of the state or other 
jurisdiction under which the nonbank affiliate is organized.
    (iv) (A) National bank shareholders who dissent from an approved 
plan to merge may receive in cash the value of their national bank 
shares if they comply with the requirements of 12 U.S.C. 214a as if the 
nonbank affiliate were a state bank. The OCC may conduct an appraisal 
or reappraisal of dissenters' shares of stock in a national bank 
involved in the merger if all parties agree that the determination is 
final and binding on each party and agree on how the total expenses of 
the OCC in making the appraisal will be divided among the parties and 
paid to the OCC.
    (B) The rights of dissenting shareholders and appraisal of 
dissenters' shares of stock in the nonbank affiliate involved in the 
merger shall be determined in the manner prescribed by the law of the 
state or other jurisdiction under which the nonbank affiliate is 
organized.
    (v) The corporate existence of each entity participating in the 
merger shall be continued in the resulting nonbank affiliate, and all 
the rights, franchises, property, appointments, liabilities, and other 
interests of the participating national bank shall be transferred to 
the resulting nonbank affiliate as set forth in 12 U.S.C. 214b, in the 
same manner and

[[Page 70131]]

to the same extent as in a merger between a national bank and a state 
bank under 12 U.S.C. 214a, as if the nonbank affiliate were a state 
bank.
* * * * *
    (j) * * *
    (1) * * *
    (iv) In the case of a transaction under paragraph (g)(4) of this 
section, the acquiring bank is an eligible bank, the resulting national 
bank will be well capitalized immediately following consummation of the 
transaction, the applicants in a prefiling communication request and 
obtain approval from the appropriate district office to use the 
streamlined application, and the total assets acquired do not exceed 10 
percent of the total assets of the acquiring national bank, as reported 
in the bank's Consolidated Report of Condition and Income filed for the 
quarter immediately preceding the filing of the application.
* * * * *

0
7. In 5.34, revise paragraph (e)(5)(v)(L) to read as follows:


Sec.  5.34  Operating subsidiaries.

* * * * *
    (e) * * *
    (5) * * *
    (v) * * *
    (L) Underwriting and reinsuring credit related insurance to the 
extent permitted under section 302 of the GLBA (15 U.S.C. 6712);
* * * * *

PART 6--PROMPT CORRECTIVE ACTION

0
8. The authority citation for part 6 continues to read as follows:

    Authority: 12 U.S.C. 93a, 1831o.

Subpart A--Capital Categories

0
9. In Sec.  6.4, revise paragraphs (c)(1)(i) and (ii) to read as 
follows:


Sec.  6.4  Capital measures and capital category definitions.

* * * * *
    (c) * * *
    (1) * * *
    (i) Maintains the pledge of assets required under 12 CFR 347.210; 
and
    (ii) Maintains the eligible assets prescribed under 12 CFR 347.211 
at 108 percent or more of the preceding quarter's average book value of 
the insured branch's third-party liabilities; and
* * * * *

PART 7--BANK ACTIVITIES AND OPERATIONS

0
10. Revise the authority citation for part 7 to read as follows:

    Authority: 12 U.S.C. 1 et seq., 71, 71a, 92, 92a, 93, 93a, 481, 
484, 1818.

Subpart A--Bank Powers

0
11. Revise Sec.  7.1008 to read as follows:


Sec.  7.1008  Preparing income tax returns for customers or public.

    A national bank may assist its customers in preparing their tax 
returns, either gratuitously or for a fee.


Sec.  7.1016  [Amended]

0
12. In Sec.  7.1016(a), redesignate footnote 30 as footnote 1.

Subpart B--Corporate Practices

0
13. Add a new Sec.  7.2024 to read as follows:


Sec.  7.2024  Staggered terms for national bank directors and size of 
bank board.

    (a) Staggered terms. Any national bank may adopt bylaws that 
provide for staggering the terms of its directors. National banks shall 
provide the OCC with copies of any bylaws so amended.
    (b) Maximum term. Any national bank director may hold office for a 
term that does not exceed three years.
    (c) Number of directors. A national bank's board of directors shall 
consist of no fewer than 5 and no more than 25 members. A national bank 
may, after notice to the OCC, increase the size of its board of 
directors above the 25 member limit. A national bank seeking to 
increase the number of its directors must notify the OCC any time the 
proposed size would exceed 25 directors. The bank's notice shall 
specify the reason(s) for the increase in the size of the board of 
directors beyond the statutory limit.

PART 9--FIDUCIARY ACTIVITIES OF NATIONAL BANKS

0
15. The authority citation for part 9 continues to read as follows:

    Authority: 12 U.S.C. 24 (Seventh), 92a, and 93a; 15 U.S.C. 78q, 
78q-1, and 78w.


0
16. In Sec.  9.18, revise paragraph (b)(4)(i) to read as follows:


Sec.  9.18  Collective investment funds.

* * * * *
    (b) * * *
    (4) Valuation--(i) Frequency of valuation. A bank administering a 
collective investment fund shall determine the value of the fund's 
readily marketable assets at least once every three months. A bank 
shall determine the value of the fund's assets that are not readily 
marketable at least once a year.
* * * * *

0
17. In Sec.  9.20, amend paragraph (b), by removing the term 
``240.17Ad-16'' and adding in its place the term ``240.17Ad-17.''

PART 28--INTERNATIONAL BANKING ACTIVITIES

0
18. The authority citation for part 28 continues to read as follows:

    Authority: 12 U.S.C. 1 et seq., 24 (Seventh), 93a, 161, 602, 
1818, 3101 et seq., and 3901 et seq.

Subpart B--Federal Branches and Agencies of Foreign Banks

0
19. In Sec.  28.16, amend paragraph (e), by removing the term ``12 CFR 
346.7'' and adding in its place the term ``12 CFR 347.207.''

PART 34--REAL ESTATE LENDING AND APPRAISALS

Subpart A--General

0
20. The authority citation for part 34 continues to read as follows:

    Authority: 12 U.S.C. 1 et seq., 29, 93a, 371, 1701j-3, 1828(o), 
and 3331 et seq.


0
21. Revise Sec.  34.3 to read as follows:


Sec.  34.3  General rule.

    A national bank may make, arrange, purchase, or sell loans or 
extensions of credit, or interests therein, that are secured by liens 
on, or interests in, real estate (real estate loans), subject to 12 
U.S.C. 1828(o) and such restrictions and requirements as the 
Comptroller of the Currency may prescribe by regulation or order.

    Dated: October 17, 2003.
John D. Hawke, Jr.,
Comptroller of the Currency.
[FR Doc. 03-31093 Filed 12-16-03; 8:45 am]
BILLING CODE 4810-33-P